Nigeria: Electricity Tariff Increase and the Big Lie, By Jibrin Ibrahim

The original sin was the mode of privatisation of the Nigerian electricity sector.

The problem is that everybody in this country knows that this is a lie and no sector of society regularly gets a minimum of 20 hours of electricity a day. You cannot build a new policy on lies and such a huge price increase in the middle of the most severe cost of living crisis in Nigerian history; it cannot stand. The new tariff is also aimed at eliminating the annual electricity subsidies of NGN1.14 trillion, we are told.

Without warning, the Nigerian Electricity Regulatory Commission (NERC) has raised the electricity tariff for most urban households by 300 per cent, on the basis of a big lie. According to the Vice Chairman of NERC, Musiliu Oseni, Band A electricity consumers regularly get 20-plus hours supply of electricity a day and should pay much more than other consumers who get much less. These privileged Nigerians do not spend much money on fuel for their generators, so they have all the extra money that accrues to them to pay their DisCo. The problem is that everybody in this country knows that this is a lie and no sector of society regularly gets a minimum of 20 hours of electricity a day. You cannot build a new policy on lies and such a huge price increase in the middle of the most severe cost of living crisis in Nigerian history; it cannot stand. The new tariff is also aimed at eliminating the annual electricity subsidies of NGN1.14 trillion, we are told.

Mr Oseni said that the Federal Government had indicated a transition in policy direction towards introducing a more targeted subsidy regime, aimed at mitigating the impact of changes in macroeconomic parameters “while largely protecting vulnerable customers and fostering investments targeted at providing efficient service delivery in the Nigerian Electricity Supply Industry (NESI).” The problem is that the sudden increase is so vast that every consumer is in reality vulnerable, and such increases need to be spread over time to reduce their impact on consumers. I seriously doubt the argument that the review process is a necessary part in achieving the objective of the Commission in the creation of a financially sustainable electricity market providing adequate and reliable power supply to drive the Nigerian economy. This is fiction.

While the tariff applies currently to the so-called Band A category, which is about 15 per cent of the customer population, NERC has also announced a plan to extend it to other bands as soon as they reach the fake level of 20-plus hours supply a day. Since the level is determined by DisCos rather than reality, I expect a rapid extension based on fake declarations, which is a tradition that Nigerians know and understand too well.

…over a decade later, the desired outcomes have not materialised and the electricity available on the national grid to light homes and power the economy has stayed at an almost constant 4,500 megawatts (MW), well below the 8,400 MW projected for 2018. One reason for this is the technical inefficiency of the grid, beginning with inefficient gas supplies, the inability of the transmission system to deploy adequate electricity, and the lack of investment by production and distribution companies.

The original sin was the mode of privatisation of the Nigerian electricity sector. It was a much-anticipated reform exercise that created much hope for Nigerians. Launched in 2010, the exercise was intended to modernise the sector and cater to the country’s growing demand for electricity. However, over a decade later, the desired outcomes have not materialised and the electricity available on the national grid to light homes and power the economy has stayed at an almost constant 4,500 megawatts (MW), well below the 8,400 MW projected for 2018. One reason for this is the technical inefficiency of the grid, beginning with inefficient gas supplies, the inability of the transmission system to deploy adequate electricity, and the lack of investment by production and distribution companies.

Such inefficiencies in the sector are compounded by the ‘legacy’ corruption that has led to poor maintenance of the transmission network during state-ownership and to the presence of politically connected bidders in the privatisation process. The design of contracts and lack of regulatory oversight further deterred credible and technically competent investors during the bidding process. The politically connected nature of many of the acquisitions also mean the government is reluctant to take any tough decision with regard to the sector. The conditions in which consumers lack supply and firms are unable to make profits have given rise to a host of interdependent corruption mechanisms. As the sector moves deeper into loss, the space for formal earnings becomes narrower, and the perverse incentives to be corrupt deepens. This has now pushed the sector into a state of low-level equilibrium, with significant restructuring needed in order to turn things around. The DisCos, for example, have refused to provide metres to most consumers so that they can be charged what they have not been supplied. In the years since 2012, the rated or installed capacity was supposed to have increased to 12,522 MWs in 2015 but this has remained fiction. The average generation has been between 3,500 and 4,000 MWs.

Projections for the performance of the sector were based on distribution and generation companies (which are not publicly listed) reinvesting in the sector to build technical capacity. Instead, the companies started paying themselves. Dramatic increases in tariff lead to more corruption, rather than improvement in power supply. The companies have no intention of investing to improve supply. The entire reform has to be reviewed because the dual goals of increasing efficiency and investment have failed significantly.

As a recent ACE-SOAS study of the Nigerian power sector reveals that the reality is that we Nigerian consumers spend more to purchase and maintain petrol and diesel generators than we do on electricity from the grid. The power sector reform has been a total failure and for that reason Nigerians are reluctant to pay more for a supply that is erratic and fails repeatedly. It is clear that Nigeria’s power sector is unsustainable, which has repercussions for inclusive growth. The current crisis is a liquidity crisis as a result of deep structural distortions in the sector. The design of contracts, post-privatisation, led to adverse selection, with only politically connected bidders participating in the process, rather than technically competent ones. These bidders used Nigerian banks for financing, which have ended up assuming much of the systemic risk. The financial health of the sector was based on tariffs and projections that could never be politically implemented. Projections for the performance of the sector were based on distribution and generation companies (which are not publicly listed) reinvesting in the sector to build technical capacity. Instead, the companies started paying themselves. Dramatic increases in tariff lead to more corruption, rather than improvement in power supply. The companies have no intention of investing to improve supply. The entire reform has to be reviewed because the dual goals of increasing efficiency and investment have failed significantly.